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September 16, 2004

Larry Groppel

Interim Superintendent

Dallas Independent School District

3700 Ross Avenue

Dallas, Texas 75204-5491

Dear Mr. Groppel:

This Final Audit Report (ED-OIG/A06-E0015) presents the results of our audit of the Dallas Independent School District’s (DISD) administration of the Teaching American History Grant (grant) for the period October 1, 2002, through September 30, 2005. Our objectives were to determine whether DISD: (1) properly accounted for and used grant funds in accordance with the Elementary and Secondary Education Act (ESEA) of 1965, as amended; Education Department General Administrative Regulations (EDGAR); grant terms; and the cost principles in Office of Management and Budget (OMB) Circular A-87; and (2) obtained prior approval for any changes made to the grant.

We provided a draft of this report to DISD. In its response to our draft report, DISD did not agree with our finding and only concurred with three of our four recommendations. We have summarized DISD’s comments after the Recommendations section in this report. A copy of DISD’s response is included as an Attachment to this report.

Title II, Part C, Subpart 4, Section 2351, of the ESEA, as amended, authorizes the Teaching American History Grant. The program awards competitive three-year grants to local education agencies (LEAs) to promote the teaching of traditional American history. LEAs must partner with one or more of the following: institutions of higher education, nonprofit history or humanities organizations, libraries, or museums to design, implement, and demonstrate effective, research-based professional development programs. The program enables schools to provide professional development programs to teachers to offer improved instruction in history and provide a better education to students.

DISD was awarded the grant, in the amount of $996,893, for the period of October 1, 2002, through September 30, 2005. The grant was awarded to allow DISD to improve the history program within the district. In its grant application, DISD proposed to partner with the University of Texas at Dallas (proposed grant share of $60,000), Learners Online, Inc. (proposed grant share of $265,000), and Teacher Curriculum Institute (proposed grant share of $384,893) to provide seminars, summer institutes, and interactive experiential learning for 200 American

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history teachers in grades 5, 8, and 11. The awarded funds were to be used for activities that helped to meet the goals of the grant, as approved by yearly budgets. DISD has drawn down $537,375 of the awarded amount during the first two years of the grant.

Although DISD properly accounted for and used grant funds in accordance with applicable Federal laws, regulations, grant terms, and cost principles during the first two years of the grant, DISD did not obtain the required prior approval for a change in key personnel for the approved grant. The DISD Executive Director of Social Studies (Director) said he thought he obtained the appropriate approval orally from the Department of Education’s (Department) grant officials. However, there was no documentation to substantiate that the Department granted the approval. Consequently, DISD disbursed $205,000 in grant funds to the new unapproved and, therefore, ineligible grant partner.

According to Learners Online’s President (President), she was initially contacted by DISD in February 2002 for a potential partnership with DISD for the Teaching American History Grant. In May 2002, Learners Online provided a preliminary “module” to DISD and began to develop the program that would meet the needs of DISD. On May 20, 2002, Learners Online and DISD signed a Memorandum of Understanding that said, “[i]f this application to the Teaching American History Grant Program is successful, the Dallas Independent School District will sub-contract with Learners On-Line [sic] to implement the program described in this application.”

In its approved grant application dated June 1, 2002, DISD presented the three grant partners it planned to partner with, along with the credentials of the key personnel in each entity. Additionally, DISD outlined the specific qualifications the partners possessed that made them best qualified to fulfill their requisite grant objective.

On October 7, 2002, the Department awarded DISD the three-year, competitive grant based on its application. On October 24, 2002, the President met with the Director at DISD to discuss the product to be delivered. The Director contacted Learners Online on October 25, 2002, and according to the President stated that he “had grave concerns that LOL [Learners Online] were not meeting the requirements of the grant.” In a meeting between the President and the Director on October 28, 2002, the President stated that the Director informed her that he was looking into another company to partner on this grant in place of Learners Online. According to the President, “between October and February there were a series of conversations and emails in which the overall theme was LOL [Learners Online] was not going to be retained on the grant.”


According to DISD, in a letter dated December 5, 2002, the relationship between DISD and Learners Online was terminated. The letter included the following explanation:

[T]he modules were constructed as student enrichment activities, not as professional development -- the essential component toward fulfilling the terms of the TAH Grant…. The terms of the grant also require each module to be based on the Texas Essential Knowledge and Skills.

The President of Learners Online stated she never had a chance to fulfill the grant terms, and that DISD never evaluated more than the preliminary module initially submitted to DISD in May 2002.

On April 8, 2003, DISD issued a Request for Proposal for the online portion of the grant, initially Learners Online’s portion of the grant. On May 5, 2003, DISD contracted with ABC-CLIO, Santa Barbara, California, for the online portion of the grant.

At no time during the five months between DISD terminating its relationship with Learners Online and contracting with ABC-CLIO did DISD obtain written approval from the Department for this change in key personnel. The Director said he spoke with Department grant officials about the problems with Learners Online and he felt that he had obtained an oral approval for the change. Grant officials stated that they were unaware of DISD’s decisions to change partners until the Learners Online President contacted them to complain. DISD did not submit the change in writing to the Department, nor did DISD submit the credentials and qualifications of ABC-CLIO outlining the specific qualifications that made ABC-CLIO best qualified to fulfill the grant objective.

Pursuant to 34 C.F.R. Part 80, Subpart C, Section 80.30(a) “[h]owever, unless waived by the awarding agency, certain types of post-award changes in budgets and projects shall require the prior written approval of the awarding agency.” Additionally, 34 C.F.R. 80.30(d)(3) states, “[g]rantees or subgrantees must obtain the prior approval of the awarding agency whenever any of the following actions is anticipated: (3) Changes in key persons in cases where specified in an application or a grant award.” In the grant application, DISD listed the three key partners of the grant, one of which was Learners Online.

According to Department officials, at minimum, DISD should have submitted a narrative in which it provided justification for dismissing Learners Online and the qualifications of the new partner. Only with this information would the Department have been in a position to reevaluate and determine if the new partner had the requisite qualifications and credentials to replace Learners Online. After obtaining the necessary information, the Department officials stated they may or may not have approved the change.

The Department awards grants based on a competitive process that includes reviewing and evaluating not only the grant objectives, but also the partners’ credentials and qualifications and how they are best qualified to fulfill the grant objectives. Because of limited funding, not all applicants receive a grant.

By submitting the qualifications of one grant partner and then switching to a new grant partner, without the required notification and approval by the Department, DISD invalidated the competitive process and potentially prevented a different applicant from receiving this grant funding. DISD’s only written notice of change in personnel was made after the fact in its Annual Performance Report submitted to the Department on September 10, 2003, which stated:

ABC-CLIO was awarded the contract to deliver the on-line and face-to-face professional development sessions with DISD teachers after Learners On-Line [sic], the potential vendor originally mentioned in the grant, failed to perform services.

DISD disbursed $205,000 to an ineligible grant partner, ABC-CLIO ($169,000 in the first year of the grant and $36,000 in the second year). Even though the grant is in the second year of the award period, DISD still has not submitted the required documentation to obtain the required approval.

We recommend that the Deputy Under Secretary of the Office of Innovation and Improvement, in accordance with the provisions in 34 C.F.R. 80.43(a)—

  1. Require DISD to refund to the Department unallowable costs of $205,000 disbursed to the ineligible partner.
  1. Instruct DISD to submit to the Department the required narrative to obtain approval for a change in partner for the Teaching American History grant.
  1. Terminate funding to DISD for the unapproved partner until the appropriate approval is obtained.
  1. Instruct DISD to follow the procedures outlined in 34 C.F.R., Part 80, Subpart C, Sections 80.30(a) and 80.30(d)(3) and provide the required notification and justification for all changes to other current and future grants.

DISD did not concur with our finding and only concurred with three of our four recommendations. DISD stated in its response, “[t]he District respectfully and strongly disagrees with the fundamental conclusion reached in the draft.” DISD also stated, “[w]e base our disagreement on errors of fact and interpretation in the report.”

DISD disputes the fact that it “ . . .failed to obtain written approval from the Department of Education (“Department”) before changing the vendor from Learners OnLine to the vendor chosen as a result of the competitive procurement process ABC-C[L]IO.”

DISD also disagrees with the assertions made by Learners Online. DISD stated it communicated with the President of Learners Online about the issues related to the project, and that it stands by its decision to replace Learners Online. According to DISD, Learners Online’s President informed the DISD Executive Director of Social Studies that she would be unable to provide the on-line portion of the grant until she received advance payment. DISD goes on to state, “. . . the process used by the District for selecting a replacement vendor complied with the requirements of state and federal law.”

However, DISD expressed its belief that it obtained a waiver from the Department for the requirement to obtain prior written approval before switching vendors, and that the Department stated once a replacement vendor was selected to notify the Department in writing through DISD’s Annual Performance Report. DISD subsequently noted the awarding of the on-line services to ABC-CLIO in its Annual Performance Report.

DISD disagrees with our recommendation that it refund $205,000 in grant funds that was disbursed to the ineligible grant partner. However, DISD agreed to submit a narrative to the Department regarding the change in partners for the grant, suspend funding to the grant partner until approval from the Department is obtained, and to follow all procedures for notification and justification for changes in grant partners for current and future grants.

Nothing in DISD’s response has caused us to change our finding or recommendations. DISD’s response did not provide any information to contradict that DISD failed to obtain written approval before changing to a key partner in the Teaching American History grant as required.

DISD’s response expressed its belief that it had obtained a waiver for the requirements set forth in 34 C.F.R. 80.30(a). However, during our review of the grant, DISD was unable to provide sufficient detail or evidence to support that the waiver was obtained, nor did it provide support that the Department was aware of the change to the grant. During the exit conference, DISD again stated that it obtained oral approval of the change; however, it did not have written documentation to support the claim. Even if DISD did obtain oral approval for the change, the regulations require prior written approval and DISD has the responsibility to ensure that it complies with Federal grant requirements.

We also spoke with officials at the Department and they stated that they were not aware of DISD’s decision to switch grant partners until the President of Learners Online contacted the Department to complain. Department officials stated that Federal regulations require prior written approval for changes to the grant. The officials requested that DISD submit a memo explaining the reason for the change; however, the memo was never provided.

The President of Learners Online stated she did not request full advance payment. She simply requested the initial installment of the contract prior to continuing to work on the grant products beyond the sample stage. According to the contract with ABC-CLIO, the “Contractor may be paid in monthly installments . . .” and the contract authorizes payment for each year of the grant with a majority of the funding, $169,000, disbursed in the first year.

Lastly, DISD agreed to submit a narrative to the Department justifying replacing Learners Online, suspend funding to the grant partner until approval from the Department is obtained, and ensure it meets these requirements for current and future grants. DISD also agreed to suspend funding to the new grant partner until the Department’s approval has been obtained. However, it disagreed with returning $205,000 of unallowable costs paid to the ineligible grant partner. Although DISD felt justified in changing grant partners, it failed to follow Federal regulations requiring prior written approval. Without providing written approval, the Department has no assurances that the new partner meets the requirements of the competitive grant process.

Our audit objectives were to determine whether DISD: (1) properly accounted for and used grant funds in accordance with the ESEA of 1965, as amended; EDGAR; grant terms; and the cost principles in OMB Circular A-87; and (2) obtained prior approval for any changes made to the grant.

To accomplish our objectives, we—

·  Reviewed applicable Federal laws and regulations;